RHHBF - Recursion Pharmaceuticals: Second Half 2024 Data Readouts Are Major Inflection Points

2023-11-16 12:35:07 ET

Summary

• Recursion Pharmaceuticals, Inc. proof-of-concept data, from the phase 2 SYCAMORE study using REC-994 for the treatment of patients with Cerebral Cavernous Malformation, expected in the 2nd half of 2024.
• Safety and preliminary efficacy data, from the phase 2/3 POPLAR study using REC-2282 for the treatment of patients with Neurofibromatosis Type 2, expected in the 2nd half of 2024.
• There are no regulatory-approved drugs to treat either Cerebral Cavernous Malformation or Neurofibromatosis Type 2.
• Company has been able to establish four partnerships thus far which will utilize its AI-driven drug development technology known as Recursion OS.

Recursion Pharmaceuticals, Inc. (RXRX) has been making great progress lately in being able to advance its pipeline. That's because it has been advancing two clinical candidates in phase 2 studies. It uses its Recursion OS to generate biological and chemical relationships for drug discovery. Why I believe it is important to look at this biotech next is because, in the coming year, RXRX expects to report some preliminary data from both of its ongoing mid-stage studies.

Both of these studies are going to be important for Recursion, because it might be able to generate proof-of-concept in its ability to use its AI-driven drug discovery technology to generate substantial candidates. Investors won't have to wait long to see data from either of these phase 2 studies, because data is going to be released from both of them in the 2nd half of 2024. Not only are there these two catalysts to look forward to, but there are many exciting partnerships that have been established with respect to its Recursion OS technology. Matter of fact, there have been a total of 4 partnerships established, all of which were made to get their hands on the AI driven technology from Recursion Pharmaceuticals.

Two Data Readouts In 2024 To Carry Shareholder Value Forward

As I noted above, there are going to be two data readouts to be released from Recursion Pharmaceuticals in 2024. One candidate is known as REC-994, which is being advanced in the phase 2 SYCAMORE trial treating patients with cerebral cavernous malformation. The second candidate is known as REC-2282, which is being advanced for the treatment of patients with Neurofibromatosis Type 2 [NF2]. Both of these trial data readouts are expected to be released in the 2nd half of 2024 and the following is set to be released for each respectively:

• Phase 2 SYCAMORE - Phase 2 proof-of-concept data in using REC-994 for the treatment of Cerebral Cavernous malformation
• Phase 2/3 POPLAR clinical trial to evaluate the safety, tolerability pharmacokinetics and preliminary efficacy data of REC-2282

Cerebral Cavernous Malformation [CCM] occurs when abnormal blood vessels that cause slow moving blood to clot. When this happens, it forms into a shape of a mulberry, which can create problems for a patient in the brain or spinal cord. Especially, when this formation causes a leakage to occur. Some symptoms that these patients with CCM might experience are as follows:

• Seizures
• Progressive neurological deficits
• Headaches
• Hemorrhagic strokes [blood from artery bleeds into brain].

There are two approaches to treating CCM, and they are microsurgical resection and stereotactic radiosurgery. One problem is that not everyone can have this type of treatment option for starters. A second problem is that there are major side effects for these two options and there is a chance for a rebleed to occur. The other clinical candidate REC-2282 is being developed to treat patients with neurofibromatosis Type 2 [NF2] . What you need to know about Neurofibromatosis Type 2 is that it occurs when a benign tumor grows into the nervous system of a patient. NF2 has two very common tumor types , which are vestibular schwannomas and meninges. Each of them targeting a different nerve type as follows:

• Vestibular Schwannomas - benign tumor on nerve that caries information from inner part of a person's ear to the brain [Auditory nerve]
• Meninges - Tumor that covers the brain and spinal cord [central nervous system targeted].

The use of this drug is being explored in the ongoing phase 2/3 POPLAR clinical trial. Just like the other indication noted above, NF2 patients must undergo surgery in order to help them. However, surgery may not be an ideal option especially if it causes a host of other problems such as hearing loss and visual problems. I would say that the targeting of both of these indications is not only ideal to prove that its AI drug discovery technology generates proof-of-concept, but also because there are no approved drugs for either of these patient populations.

Financials

According to the 10-Q SEC Filing , Recursion Pharmaceuticals had cash and cash equivalents of $387.3 million as of September 30, 2023. This amount of cash on hand doesn't include the $3 million to be paid by Roche based on its option that it took as part of the partnership for the GI-oncology program that was made. It has been able to raise cash through several financial transactions since its inception.

One of the most recent financial transactions involved a Stock Purchase Agreement for a private placement with Nvidia ( NVDA ). With respect to the Stock Purchase Agreement for a private placement with Nvidia it sold an aggregate of 7.7 million shares of its Class A common stock at a price of $6.49 per share for net proceeds of about $50 million . With respect to the Open-Market Sales Agreement it made with Jefferies it was created so that Recursion could sell up to an aggregate of $300 million of its Class A common stock from time to time as necessary.

The good news is that as of September 30th of 2023, it hasn't sold any shares under this agreement. However, should it need to raise additional cash in the coming months, then this option is available to use should it need to do so. Recursion Pharmaceuticals believes that it has enough cash to fund its operations for at least the next 12 months. This is not going to be enough cash to fund itself and as such it is going to need to raise additional cash at least in the early part of 2024. It could use the Open-Market Sales Agreement I noted above, or it could generate another financial transaction instead.

Risks To Business

There are several risks that investors should be aware of before investing in Recursion Pharmaceuticals. The first risk to consider would be with respect to the use of REC-994, which is being advanced in the ongoing phase 2 SYCAMORE trial for the treatment of patients with cerebral cavernous malformation. Proof-of-concept data from this mid-stage study are going to be released in the 2nd half of 2024. There is no guarantee that such proof-of-concept data is going to happen when these patients are given REC-994.

The second risk to consider would be with respect to the use of REC-2282, which is being advanced in the phase 2/3 POPLAR study for the treatment of patients with Neurofibromatosis Type 2 [NF2]. It is expected that safety and preliminary efficacy data from this mid-stage trial are also going to be released in the 2nd half of 2024. There is no guarantee that the use of REC-2282 for the treatment of this patient population will be shown to be safe or efficacious.

The third risk to consider would then be based on all the partnerships that Recursion Pharmaceuticals has been able to generate with a few of the companies as part of a collaboration agreement. Such companies would be Bayer ( BAYRY ) and Roche ( RHHBY ), specifically. That's because a lot of the possible additional payments it is to receive based on its collaboration agreements is contingent upon meeting specified milestones. There is no assurance that such milestones will be achieved, nor that any payments will be given.

The fourth and final risk to consider would be with respect to the financial position that Recursion Pharmaceuticals is in. That's because, as I stated above in the financials section, RXRX believes that it only has enough cash to fund its operations for at least the next 12 months. I believe this means that it will have to start at looking for ways to raise ash at least by the early part of 2024.

Conclusion

Recursion Pharmaceuticals has made great progress in being able to advance its pipeline. Especially, when you consider that it has a few clinical studies underway in order to test its AI driven-biological drug development capabilities. As I noted in this article, it has two data readouts in 2024, which if positive would provide such proof-of-concept for its technology. A lot of pharmaceutical partners think that this biotech has some good technology for consideration. Nvidia made an equity investment of $50 million for starters. Then Bayer and Roche also made upfront payments along with milestone payments/tiered royalties to advanced AI driven drugs. I believe that there is great value here for shareholders because of the two data readouts which are expected in the 2nd half of 2024.

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